The US economy grew at a much stronger pace than expected in the second quarter, driven by a shift in trade balance and updated consumer strength, the Commerce Department reported Wednesday.
The total goods and services activity across the vast US economy rose 3% from April to June, according to figures adjusted for seasonality and inflation.
This led to Dow Jones’ estimates of 2.3%, reversing a 0.5% drop in the first quarter. This is because imports have dropped significantly, and are down from the total, weaker consumer spending amid tariff concerns.
Financial markets responded little to the report, but stock index futures mixed together, making the Treasury even higher.
“The economic summer words are ‘resilient,'” said Heather Long, chief economist for the Navy Federal Credit Union. “Consumers are hanging there, but they’re still on the edge until the trade deal is complete.”
The period reported Wednesday includes President Donald Trump’s April 2nd “liberation day” tariff announcement. Imports flew into the first quarter as companies aimed to stay ahead of the announcement.
Over the past three months, Trump has jungled the nervous, but nevertheless engaged in multiple saber-ratting and often intense negotiations with US trading partners that are consistent with a modest but solid pace of economic growth.
The consultations primarily brought tariffs that were far greater than where they were at the beginning of the year, but not as serious as initially proposed.
“The anti-Trump story was that it would cause a recession and depression due to tariffs, which would raise prices and bring consumers to the exit.” “In fact, everything about this GDP release shows strength.”
Consumer spending rose 1.4% in the second quarter, outperforming 0.5% in the previous period. Exports fell 1.8% during the period, but imports fell 30.3%, reversing a 37.9% surge in the first quarter.
GDP tallies showed strength across key regions of the economy, providing evidence that inflation has not been eradicated but has been carried over.
The Federal Reserve’s main inflation indicator, the Personal Consumption Expense Price Index, showed quarterly profits of 2.1%, slightly above the central bank’s 2% target. Core PCE inflation, which is considered a better gauge against long-term trends, increased by 2.5%, as the Fed excludes volatile food and energy prices. The figures for the first quarter were 3.7% and 3.5% respectively.
The Fed will take place later Wednesday and are expected to stabilize overnight borrowing rates in the 4.25%-4.5% range for the first time since December.
Trump responded to the GDP report with new demand for the Federal Reserve to cut interest rates.
“2Q GDP is just out: 3%, far better than expected!” Trump posted to the Society of Truth. Using the nickname Fed Chairman Jerome Powell, the president said, “‘too late’ now needs to lower the rate. There is no inflation.
There were some signs of slowing down in the report.
Final sales to private domestic buyers, a metric that closely monitors as a demand indicator, rose just 1.2% from its slowest profit since the fourth quarter of 2022, with a 1.9% increase since the fourth quarter and its slowest profit.
Trump has complained about the high mortgage rates that have hampered the housing market. Housing investment fell 4.6% in the second quarter.
At the same time, GDP recorded its strong rise without help from government spending. Federal spending fell 3.7%, down 4.6% in the first quarter. State and local government spending rose 3%.
